M/S Stresscrete (P.)... v. Acit, Circle-9(1), N...

PER SHAMIM YAHYA : AM This appeal by the assessee is directed against the order of the Ld. CIT(A) dated 03.11.2009 pertaining to assessment year 2007-08.

2. The issue raised reads as under:- That the ld. CIT(A) is not justified in confirming the addition of Rs. 7 lacs taken by the appellant company from another group concern treating the same as deemed dividend u/s 2(22)(e) of the Income Tax Act. The transaction is one part of business transactions between the appellant and associate concern. Moreover, neither the appellant is a shareholder directly nor a beneficiary directly or indirectly in the associate group concern. ITA NO. 363/DEL/2010 A.Y. 2007-08

3. The assessee company in this case is engaged in the business of manufacturing of concrete slippers for the railways. During the course of assessment the Assessing Officer observed that assessee company had received a loan of Rs. 22,00,000/- form M/s Batra Associate Ltd. He further observed that Shri AL Batra is a common shareholder in both the companies and Shri Batra was holding more than 20% of the share in both the companies. Hence AO held that assessees case falls u/s 2(22)(e) of the IT Act and the same was taxed as deemed dividend. He further held that out of 22,00,000/-, Rs. 15,00,000/- was already brought to tax in the previous year, therefore, the remaining Rs. 7,00,000/- is to be added during the current year.

5. Upon assessees appeal ld. CIT(A) confirmed the AOs order despite the assessees contention that the matter was covered by the ITAT order.

6. Against this order the assessee is in appeal before us.

7. We have heard both the counsel and perused the records. We find that in assessees own case in identical circumstances this Tribunal for A.Y. 2005-06 and for A.Y. 2006-07 has deleted the addition following the Special Bench decision in the case of ACIT vs. Bhaumik Colour Pvt. Ltd. 313 ITR 146 AT. The tribunal in its order dated 4.9.2009 in ITA No. 2678/Del/2009 for A.Y. 2005-06 has dealt with the issue as under:-

7. We have heard both the counsels and perused the records. We can gainfully refer to the deeming provision of section 2(22)(e) which reads as under:- any payment by a company, not being a company in which the public are substantially interested, of any sum (whether as representing a part of the assets of the ITA NO. 363/DEL/2010 A.Y. 2007-08 company or otherwise) [made after the 31 day of May, 1987, by way of advance or loan to a shareholder, being a person who is beneficial owner of shares (not being shares entitled to a fixed rate of dividend whether with or without a right to participate in profits) holding not less than ten per cent of the voting power, or to any concern in which such shareholder is a member or a partner and in which he has a substantial interest (hereafter in this clause referred to as the said concern)] or any payment by any such company on behalf, or for the individual benefit, of any such shareholder, to the extent to which the company in either case possesses accumulated profits.

8. We find that authorities below have found that the assessees case falls under the second limb in the above provision. However, the same aspect was subject matter of consideration by the Special bench of this Tribunal in 313 ITR 146 in the case of Bhaumik Colour Pvt. Ltd. The Special Bench elaborately considered the issue and concluded that in such a case deemed dividend under section 2(22)(e) of the Act can be assessed only in the hands of the share holder of the lender company and not in the hands of any other person.

9. Applying the above ratio to the facts of the present case, we find that the assessee company who has received the amount is not the shareholder of the lender company, and as such cannot be held liable for deemed dividend under section 2(22)(e) of the IT Act. Hence following the precedent from the Special Bench, we set aside the orders of the authorities below and decide the issue in favour of the assessee.

8. Since the facts are identical, following the above precedent, we set aside the orders of the authorities below and delete the addition. ITA NO. 363/DEL/2010 A.Y. 2007-08

9. In the result, the appeal filed by the Assessee is allowed. Order pronounced in the open court on 25/03/2010 upon conclusion of the hearing. SD/- SD/- [A.D. JAIN) [SHAMIM YAHYA] JUDICIAL MEMBER ACCOUNTANT MEMBER Date: 25/03/2010 Copy forwarded to: -

1. Appellant 2. Respondent 3. CIT 4. CIT (A) 5. DR, ITAT TRUE COPY By Order, Deputy Registrar, ITAT, Delhi Benches